And what if you use Palladium instead of Vibranium (since the latter is yet to be synthetized or discovered)? Becides, since the ARC reactor is a devise based on the Soviet Tokamak (which was a cold fusion device designed on the late 80') wouldn't be any radiation leaks?

I reckon not, what Spectacular23 said is quite logical. Tony had done every research on every elements that he could (before Fury nailed him) and he could not find any solutions. His previous arc reactors are made of palladiums and it was killing Tony. Remember during the 40s' when Howard created Capt America's shield? That's the only vibraniums they've got but if there were more vibraniums, the arc reactor would be even cleaner. Again, it depends on what's the palladium made arc reactor's purpose, if u're fitting it into your body, that could be harmful; but if u're setting up a clean energy source supply, I dont think there's any problem because the arc reactor had never claimed with any gamma radiation.

Anyway, let's think of this hypothetically, let's just say Tony manage to find more vibraniums (perhaps these vibraniums can be found in Asgard and the supply is as much as the steels in earth, as Howard mentioned that he's limited by the tech of his time, possibly that he wasnt able to find more), and he built another suit with all these vibraniums, I reckon that he could be totally invincible, then a fight with Shakespeare again in-the-park would not be a problem at all. Think about that, Captain's shield was able to repel Thor's hammer, and Thor's Might of Mjolnir is an advantage to Iron Man in terms of the increament of the suit's power capacity, by then, where's Iron Man's weakness? (unless he unsuit himself)